CALIFORNIA COMMENTARY : L.A. Is the Hole in the Bucket : The area accounts for 27% of total U.S. job losses over two years; any successful national recovery must aim here.

Between June, 1990, and December, 1992, the United States lost 2 million jobs. During more than half of that time, the economy was officially in a recovery mode. The specter of eroding employment is generating debate over national strategies to counter job losses. The debate turns on the relative merits of national programs for infrastructure, training, tax credits, social policies and on recommended dosage: $30 billion up front, $40 billion over nine months and on and on. It is the wrong debate--at least 27% wrong. Because 27% of total U.S. job losses between June, 1990, and December, 1992, took place in one town--the five-county Los Angeles metro area! Over three quarters of total U. S. job losses are in three states; they are not spread all over the map. California, all by itself, accounts for 38% of the U.S. total in this period, according to data compiled by Tappan Munroe, chief economist for Pacific Gas and Electric Co. Job losses are savagely not average. Macroeconomic data, generally a bunch of averages of averages, miss the point. And so do the best traditional macroeconomists. Because the point is just that: a point on a map. One “town.” Something has gone very wrong with the L.A. economy and we are not going to fix it with a diffused, macro approach aimed at the entire nation. We need a laser beam, or, given the location, perhaps a moonbeam. But there is no need to try for a whole new national macroeconomic dawn. Geographic trickle-down is no more efficient than the “supply side” trickle down we tried during the last 12 years. Letting Los Angeles rot has its temptations for America, and the idea might just carry if we submitted it to a referendum on phone-in talk shows. But we need to fix Los Angeles before it continues to pull all those national economic averages down, this time in real terms, with an impact on real towns and suburbs across the country. Also, there is more than a passing chance that Los Angeles might just go up in flames. One thing is certain, however: if California keeps declining as it has, it will pull any sitting President down with it. There is no single reason for California’s economic collapse. Part of the problem is cyclical: The rolling recession that spread across the United States during the past three years, rather like a flu epidemic, hit California late. And its effects are still being felt long after those first affected, in the Midwest, have recovered. But the other part of the problem is structural. And the structural problems have not, and will not, respond to a spontaneous national recovery from recession, even one augmented by a booster shot of national counter-cyclical policies, at least not at the dosages likely to be administered--like a half-point on interest rates. Of these structural problems, the biggest is massive defense cutbacks, disproportionately centered in Los Angeles, where defense contracting had been disproportionately centered. This is closely followed by a hangover in the construction industry from the S & L-inspired building boom of the late 1980s; no one in their right mind is likely to build new office towers or shopping centers for the next half-dozen years. There are plenty of nice, new, empty ones. So defense layoffs, the collapse of the construction industry, corporate downsizing and the late arrival of the recession all reinforced and compounded one another to push down the California economy. The state budget crisis is largely an effect, but also a contributing cause, of these economic troubles. Smart, well-balanced, national macroeconomic recovery programs will not dent the problems of metro Los Angeles or of California, problems that threaten to pull the whole economy back down. In addition to national measures, localized, structural problems need localized, structural approaches--and this time, it would be foolish to count on a renewed arms race with the Russians.